Meltdown of an ice cream fortune

SCENE: A SMALL courtroom on the eighth floor of a bland, pink-granite office building on the unfashionable fringes of downtown White Plains, N.Y., late April. A dozen of the lawyers contesting the estate of the ice cream magnate Thomas Carvel have gathered before Judge Albert J.

Emanuelli of the Westchester surrogates court. They have just concluded two months of all-day depositions in the latest, but far from last, phase of a case which, in the way that life imitates art, could have come straight from the pages of Charles Dickens' Bleak House, wherein the matter of Jarndyce v. Jarndyce supported generations of lawyers.

"I came here in 1991, and this case is still being litigated," the judge told the assembled attorneys. "Seven years of litigation. I think it's tragic."

What could have been a $200 million estate has dwindled to about $60 million. Carvel wanted his money to benefit his frail widow and local charities. But the largest recipients of that money so far have been the lawyers.

What happened to Carvel happens all the time in messy probate court proceedings that go on for years, leave heirs embittered and make only the lawyers better off. It is simply happening on a grander scale in Carvel's case.

Carvel died childless at the age of 84 in October 1990. He left behind most of the $80 million proceeds from selling his namesake ice cream chain the year before, plus real estate, including a golf course in upstate New York and an unknown number of plots on which the 800 Carvel franchisees have their kiosks. You'd think that real estate would be pretty hard to misplace, but the deeds -- held through corporations whose ownership is in dispute -- are up in the air, along with almost everything else about the estate.

Just before Carvel's death, says Richard King, a longtime friend, "he told me he was making more from real estate than ice cream." The total fortune could have been worth as much as $200 million. Where's the money? It may never be found, if it ever existed. But never mind the real estate. If Carvel had done nothing but hand over the business to a charitable foundation, and if the foundation had put proceeds from the sale in an index fund, it would have close to $250 million now. But the Thomas and Agnes Carvel Foundation has but $12 million, and has managed to distribute less than $6 million to charitable purposes since Carvel died. The widow isn't doing particularly well, either. Although she was supposed to receive the income from her husband's fortune, she hasn't seen a penny from this part of the estate (although she is getting payments from some Carvel trusts).

What did Tom Carvel do wrong? He violated five basic rules of estate planning.

Rule 1: Find a trustworthy executor. You can't be casual about choosing someone who is going to have control of your life's savings. A relative is an obvious choice. But what if you are dividing your estate among three relatives? Picking one as arbiter is a recipe for unfairness, resentment or even litigation. Naming a spouse as executor is plausible, especially if the spouse is the sole heir. But not if the spouse is too frail or distraught to be effective. A family friend? He or she might not have the time, and estates can take an enormous amount of time. A law firm or bank? It would be honest and disinterested -- but expensive ($30,000 and up for a $1 million estate).

Carvel's solution to this problem may have been one of the worst in the history of estate administration. He had no fewer than seven executors -- and they fought like cats.

One was his widow, Agnes, now 89. She has suffered a heart attack and several strokes and has fled to London. She stepped down in the face of demands by other participants in this affair for an in-court examination for mental competency.

Another executor was a judge, Anthony Cerrato, who has since died.

Another was a niece, Pamela Carvel, who lives with Agnes. The surrogates court suspended Pamela after she made $2 million in questionable deposits into Swiss bank accounts on, she says, Agnes' behalf.

Then there were two of Tom Carvel's business associates: his long- time (since 1952) and powerful secretary, Mildred Arcadipane (see box, p. 216), and his lawyer, Robert Davis. Arcadipane and Davis have been forced to resign from trusteeships on the board of the Thomas and Agnes Carvel Foundation following charges by the New York Attorney General's office of enriching themselves and their friends at the foundation's expense. (Among other things, the A.G. accused them of using foundation money to pay college tuitions for friends and a relative, and of orchestrating a $4 million sham stock transaction involving the foundation's shares in Carvel Corp.)

Betty Godley, Agnes' niece, one of the two remaining executors of the estate as well as a trustee on a Florida trust holding $9 million of Agnes' money, has accused Pamela of blocking all communications with her favorite aunt. Pamela responds, in an interview, that Agnes believes Godley is a "thief" who wants Agnes declared incompetent. We couldn't get Agnes' opinion; the widow isn't participating in the court proceedings, either, and her lawyers say that a deposition could kill her.

Carvel spent a lot of his very successful business career arbitrating disputes. He didn't stop to think how hard it would be to settle these disputes when he was gone. Nor did he give much thought to the conflicts between his associates' roles as fiduciaries and their roles as heirs.

Pending, alongside the sordid Carvel case in the Westchester surrogates court, is a garden-variety estate involving an all-too-common kind of dispute. Two daughters have spent two years fighting over their mother's antique tea table. The piece is worth either $30,000 or $900,000, depending on whether you talk to the daughter who wants to sell her half or the one who wants to buy.

Estates don't have to go on like this. If you have a family with some unsettled scores, get an outside arbiter. Let the executor auction off the tea table.

Rule 3. Keep it simple. Carvel's probate case involves six entities that we know of: the foundation, the Florida trust for Agnes, the charitable remainder trust, two real estate holding companies and the estate. He didn't need to make it so complicated. His needs were simple: Set aside enough for his widow to live comfortably and leave the rest to charity. He could have accomplished all this very cleanly by purchasing an annuity for Agnes from an insurance company and leaving the whole estate to charity.

The Carvel will is a monster, including small bequests to 83 different beneficiaries, most of them loyal employees. He'd have done better to write out bonus checks when he sold the company.

Rule 4. Get your papers in order.

Comedian W.C. Fields made a mess for his executor by squirreling sums into scores of bank accounts across the country. Don't play this trick on your heirs. After you write your will, write out a ledger of your assets and your insurance policies, including account numbers, phone numbers and addresses where relevant. Put it where your heirs will find it. And make sure they can find the will. Sign duplicate copies, leaving one with your law firm and one in a safe deposit box controlled by a trustworthy person.

Carvel was sloppy with paperwork. He shifted funds and ownership of various accounts and corporations and he often did it haphazardly, ignoring details like signing documents or filing them. He would move money from accounts held jointly with his wife into a corporation, or, in one contentious case, allegedly have her sell her shares in a subsidiary but then have her listed not long afterwards as an owner. He kept everything straight when he was alive, but when he died there was no one to determine how the cards should be played.

What about the will? Arcadipane testified she had sole access to a locked file cabinet where Carvel's will had been filed, yet it nonetheless disappeared. A document shredder in the Carvel office was uncommonly busy in the months after the entrepreneur's death. During that period, a blizzard of transactions occurred. Lost-will proceedings, costing perhaps $100,000, concluded in February 1991, just days before a signed will was mysteriously discovered in a box at Carvel and Arcadipane's office.

Rule 5. Don't be a control freak. You might get away with micromanaging the affairs of your spouse and your business associates while you are alive. "The greatest danger to an estate is managing it from the grave," says Arthur Richenthal, a New York lawyer involved in estate cases for half a century. "Nobody can anticipate changes in circumstances and relationships." Write your deadbeat son out of your will, if that's the right thing to do, but don't lather conditions and contingencies onto the will. It just gives the heirs more things to fight over.

Carvel was a controlling type. It probably did him good as an ice cream vendor. When a trailer he used to transport ice cream between county fairs broke down in Hartsdale, N.Y., he opened his first store out of the back of the truck on a site that continues as a Carvel store to this day. He then vertically integrated, first by producing ice cream machines, then by adding everything from recipes to preassembled stores.

He fought a costly, but ultimately successful, ten-year battle against the Federal Trade Commission to have the sole right to supply every facet of Carvel stores, from mixes to napkins. Franchisees couldn't begin work until attending Carvel's "college" for three months of intensive training. The core lesson was do it the Carvel way, or go away. He sold the company, to a group of Middle Eastern investors who also bought Saks Fifth Avenue, only when ill health forced his hand.

Thomas Kornacki, a Carvel employee for the past 22 years, explains how his late boss came up with the army of competing executors: "Tom Carvel always had somebody checking the checkers. When he was alive, he could always settle the inevitable disputes by dictating a resolution.

Just do it his way. A court can't settle anything instantly like that."